iTunes to Offer EMI's DRM-free Music

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12:00 pm ET April 2, 2007 - In what could be a watershed moment for the digital entertainment industry, leading music publisher EMI Group announced today it would provide most of its music catalog to listeners without any digital rights management restrictions.

And making Apple CEO Steve Jobs live up to his promises from earlier this year, the two companies have reached a breakthrough agreement where DRM-free EMI music will be available on iTunes next month.

As EMI Group CEO Eric Nicoli announced in a press conference in London this morning, his company will be making available DRM-free music tracks across all platforms, with iTunes having signed up as the publisher’s first distributing partner. DRM-free tracks on iTunes will carry a premium, selling for $1.29 per track versus the $0.99 that has been iTunes’ standard since its inception.

Just yesterday, EMI Group CEO Eric Nicoli issued invitations to his employees to attend his company’s headquarters in London, specifically in the center atrium, for what appeared to be a little concert and a little announcement. Given what day it was, employees weren’t at all certain the invitation was serious.

“We were acutely aware that the invitations were issued on April Fool’s Day,” opened Nicoli during his speech to employees, which was open to the press and which was indeed preceded by a concert. “That was, I’m afraid, unavoidable, and we’re aware that the invitations have provoked considerable speculation over the last 24 hours.”

Given that the press attendance was indeed real, the nature of Nicoli’s announcement ended up not much of a surprise among the company’s ranks, judging from the audience response during the conference’s audio feed.

Nicoli proceeded to explain how EMI came to the conclusion that providing DRM-free tracks to customers was an evolutionary necessity. “In all of our research,” he said, “consumers tell us overwhelmingly that they would be prepared to pay a higher price for digital music files that they could use on any player. It’s clear to us that interoperability is important to music buyers, and is a key to unlocking and energizing the digital business.

“In January, we ran a number of tests with DRM-free downloads of music from selected leading artists, and in these tests, we made available standard quality downloads and higher-quality downloads at a premium price,” Nicoli continued. “The results were resoundingly clear, with the higher-quality tracks outselling standard by 10 to 1, reaffirming our belief that sound fidelity is for many an important factor.”

Along with the lifting of DRM provisions comes what audiophiles will consider a significant bonus: EMI’s DRM-free tracks will be encoded using 256 kbps non-variable AAC encoding, which Apple says is the same quality level as the original in-studio recording.

“While the current 128 kilobit per second AAC encoding is the best audio quality offered by any mainstream digital music store, audiophiles can still tell a difference between it and the original source material,” Jobs stated this morning. “As portable music players have increased their storage while at the same time coming down in price, it is time to reconsider delivering even higher audio quality than is currently available.”

As he later stated, while FairPlay-endowed, 128 kbps EMI tracks will continue to be available at $0.99 each. “In addition, iTunes customers will be able to easily upgrade their entire library of previously purchased EMI songs and albums to higher-quality DRM-free versions for just 30 cents a song,” Jobs added. “We think customers are going to really appreciate this.”

“Our sampling of users indicates that the vast majority of them will pay the additional 30 cents for the superior audio quality and the safety net of interoperability,” Jobs remarked. “iTunes will let users choose to automatically buy these new DRM-free versions whenever they are available, so that users won’t need to think about it on a song-by-song basis.”

The deal between EMI and Apple brings to an end a two-year-old dispute between them, and may literally have taken place just over the weekend, with Apple’s move just last week to promote albums through iTunes perhaps having served as the crack in the dam. Throughout his statements this morning, EMI’s Nicoli referred to the importance of the album, not just the song, as his company’s principal product.

“Since the digital download business started, many people have talked about the demise of the album,” stated Nicoli. “They said that consumers will cherry-pick their favorite tracks, and will no longer want to buy full albums. At EMI, we believe that the body of work an artist produces is still very important for many fans, and our experience to date tells us there remains a high interest in full albums. At the same time, many do indeed prefer to buy individual tracks.”

To help EMI promote its albums, not just its artists and its songs, Jobs announced that iTunes will be making entire EMI-labeled albums available in the new 256 kbps AAC, DRM-free format at the standard price per track, “so customers can elect to purchase the DRM-free albums with even higher audio quality for the same price.

“EMI has taken the first bold step in the music industry,” Jobs continued. “And starting today, Apple will reach out to all the other major and independent labels to give them the same opportunity. We think our customers are going to love this, and we estimate that well over half of the five million tracks offered on iTunes today will be also offered in DRM-free versions by the end of this calendar year.”

The agreement may not have been without some compromise: Although both executives made references to EMI’s entire music catalog, according to AP reports, tracks from The Beatles have been excluded from this deal. Also, Jobs has obviously given in on his earlier insistence upon a flat fee for music, which was a tremendous sticking point in his previous negotiations with the recording industry as a whole. Now, the other major industry players – Universal Music, Warner Music, and Sony BMG – may be able to exploit Jobs’ willingness to establish a premium tier.

But by making a deal with EMI and not the recording industry, Jobs may have made a very smart play, after recognizing that the industry’s collective representatives may be unwilling to take evolutionary steps as a single entity, though its members may be willing to do so in the spirit of competition.

Still, Jobs showed a few signs of reluctance, even while appearing to embrace the concept of interoperability. While Nicoli stated interoperability was among his customers’ prime concerns, Jobs seemed to think that at least some iTunes customers might not think it’s such a big deal, since in his view, they kinda had interoperability already.

Referring to his customers’ history with iTunes, Jobs remarked, “Although most users have never bumped up against the DRM, the music they have bought from iTunes will not play on portable music players other than iPods unless they burn it onto a CD, and then read that CD back into the computer. So it is interoperable, but it’s a little bit of a hassle. Even though users may not want to play their music on devices other than iPods today, they want to know that they have that choice in the future.”

That last sentence appeared to point to a glimmer of an inkling of a hope that Apple’s loyal customers wouldn’t dream of shifting brands, with iPod as well as Macintosh.

Referring to the tremendous buzz Jobs’ open letter to customers received a few months ago, he closed his comments with this: “Some doubted Apple’s sincerity when we proposed this solution to the interoperability problem earlier this year, saying that as the #1 digital music store and the #1 maker of digital music players, we had too much to lose by breaking the proprietary bond between the iTunes Music Store and iPod music players. Hopefully, by our actions here today and over the coming months, they will conclude that we are continuing to do exactly what has earned us these #1 positions: doing the right thing for the customer, and the right thing for the customer going forward is to tear down the walls that preclude interoperability by going DRM-free. And that starts here today.”

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